29 Oct 2012

Interest rate cut by RBA not expected

7:22 am on 29 October 2012

The introduction of a carbon tax in Australia has contribution to a spike in inflation and resulted in financial markets paring their bets on an interest rate cut next Tuesday.

A week ago, the futures market had odds of more than 90% on a interest rate cut on Melbourne Cup Day.

Then came the September quarter CPI report, showing a sharp rise in inflation. Contributing to the 1.4% rise in the quarterly CPI was the introduction of a carbon tax from the start of the financial year.

But it wasn't just that. Higher food and housing prices were big contributors.

But Radio New Zealand's Sydney correspondent says the number one culprit was electricity prices, which were up more than 15%.

As a result of the CPI outcome, the market has pared chances of a rate cut in November to around 70%. Waiting to December would allow the Reserve Bank of Australia to review global influences.

The official cash rate is currently 3.25%.